Archive for October, 2010
Posted on October 27th, 2010 by Mark Stopa
I’m seeing an increasing number of reports that banks are cancelling foreclosure sales, and, candidly, I’m as perturbed about it as the judges, but for different reasons.
Judges are upset because they want to keep “pushing through” foreclosure cases so as to reduce their caseloads. I’m perturbed because these cancellations show that the entire foreclosure process is senseless.
When a foreclosure case gets to the stage that the bank is cancelling a foreclosure sale, that means the bank has convinced a judge to grant a Final Judgment of Foreclosure, and caused the homeowner to vacate possession (presumably), but won’t take title to the property. I suppose I could sort of understand, maybe, a little bit, sort of, if the property was going on the market. But if it’s just going to sit, abandoned, then what’s the point?
Judges, why rush to enter judgments, and foreclose on Florida homeowners, when banks are leaving the houses vacant (and aren’t even taking title)?
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Posted on October 25th, 2010 by Mark Stopa
The ongoing and systematic refusal by banks to enter meaningful loan modifications with homeowners will have long-term consequences that the average American cannot yet imagine. Just try to picture it…
Imagine your typical American family. Married couple, two kids. Earn $40,000 per year. Own a house worth $150,000 but owe $250,000. Have two cars, a small amount of savings/retirement money, and $10,000 in unsecured debt (credit cards). The numbers can vary, but you get the picture – your typical, middle-class family that’s making ends meat but not much else.
There’s a strong argument to be made, for such a couple, that it’s in their best interests to strategically default, i.e. stop paying on their mortgage, defend their ensuing foreclosure lawsuit, and file a bankruptcy (Chapter 7 or Chapter 13, depending on their circumstances). Each situation is different, but in all likelihood, this would drastically reduce or eliminate their credit card debts, drastically reduce or eliminate the deficiency on their mortgage (the $100,000 difference between what they owe on their home and what it’s worth), enable them to save money while their foreclosure case is pending, and give them a “fresh start” if/when the foreclosure is finalized.
For instance, suppose the foreclosure lawsuit were to take a year to conclude (a conservative estimate in light of recent reports out of Palm Beach that the average case takes 18 months), and their mortgage payment was $1,500 per month. With those figures, this couple would accumulate $18,000 in savings, merely by not paying their mortgage while the foreclosure lawsuit was pending ($1,500 x 12 = $18,000). If they completed a bankruptcy, they could keep this $18,000 if/when the foreclosure case was over. The $250,000 debt on the house? Poof – gone (or substantially reduced). The $10,000 in credit card debt? Poof – gone (or substantially reduced). Sure, this couple would lose their house, but what was the house really worth anyway? As I see it, and I suspect most accountants would agree, losing a house worth $150,000 when you owe $250,000 means you eliminated a $100,000 liability. Hence, the liabilities are gone, but the $18,000 – that’s the couple’s money to keep.
Now imagine the foreclosure case takes two years instead of one. Again, no way to know for sure, but given what I’m seeing in Florida, it’s certainly within the realm of possibilities. In that event, the couple would have $36,000 when the foreclosure lawsuit ends in two years. Think about that. $36,000 cash and little or no debt (depending on the type of bankruptcy), and all you had to do was defend your foreclosure case and file bankruptcy! And it’s all perfectly legal!
With this example in mind, who wouldn’t want to strategically default? I realize there are strong moral arguments not to do this, but let’s put aside morality for a moment and view this purely from a purely financial perspective. (That’s not terribly unreasonable, since that’s what the banks typically do.) Isn’t it clear this couple would be better off by strategically defaulting on their mortgage, defending the foreclosure lawsuit, and filing bankruptcy? In other words, isn’t it better to eliminate most or all of your debt, save up money, and have $18,000 or $36,000 or whatever amount in your pocket, and start fresh, than to owe $100,000 more on a house than it’s worth and credit card debt? Heck, in today’s economy, $18,000 or $36,000 (or whatever amount you were able to save) could buy you a house, free and clear. As such, it may be possible to convert your $250,000 mortgage into a free and clear house by doing nothing except strategically defaulting on your existing mortgage, filing bankruptcy, and retaining a competent foreclosure defense attorney to defend your foreclosure lawsuit.
Now the staggering thought – there are literally millions of Florida homeowners in this type of situation. Sure, there are plenty of Floridians who aren’t realistic candidates for bankruptcy because they have too many assets, too much income, or both. In today’s economy, though, such people seem to be few and far between. As such, what percentage of Florida homeowners could strategically default, stop paying their mortgage, file bankruptcy, and be better off? 40%? 50%? More?
Now, try to imagine what our country’s financial system will look like if this happens. Imagine half of all Floridians with a mortgage – or half of all Americans with a mortgage – go into default. If that happens, what will our financial sector look like? Will big banks even exist? What will property values fall to? What will our court systems look like? These are staggering questions for which there is no clear answer.
Now a tough question – should the typical Florida homeowner care? In other words, to what extent should homeowners continue paying their mortgages for the “good of society,” even to their own detriment? Undoubtedly, there are arguments to be made on both sides of this issue as well. Given society’s “me first” attitude, though, I’m confident many people will disregard the impact on society and embark on this path. Hence:
As things now stand, millions of homeowners will choose a strategic default.
Avoiding this consequence should be the primary objective of the U.S. government. Quite simply, our government must step in and do something to ensure that everyone doesn’t have the incentive to strategically default. Our economy and financial sector as a whole will not be able to function if so many Americans have the incentive to stop paying.
How does one go about this? The problem, in my eyes, goes back to the absence of meaningful loan modifications. People have the incentive to default because they see that a bankruptcy court would eliminate or reduce their debt and nobody else, i.e. the banks, is willing to do so. Using the example above, if the banks reduced the mortgage to $150,000 or even $175,000, maybe that homeowner would have some incentive to keep paying. Suffice it to say that to fix this looming crisis the government must implement some type of loan modification program that will work on a massive, widespread level. Absent that, our country is headed down a path of “stop paying, file bankruptcy, defend the foreclosure, and come out on the back end far better off.”
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Posted on October 25th, 2010 by Mark Stopa
Earlier today, Stopa Law Firm tried to set a hearing in a foreclosure case in which David Stern is opposing counsel. An assistant with Stern’s office informed us that all cases with Fannie Mae are “on hold” and she was “not allowed” to set a hearing.
The media has previously reported that Fannie Mae was not sending new files to Stern, but this is the first indication I’ve seen that existing cases were “on hold.” In fact, Stern’s assistant told Stopa Law Firm that she had “just received” an email in this regard.
Suffice it to say that with each passing day, the walls continue to close in around David J. Stern. I don’t want to sound like I’m picking on him, but there’s a lesson to be learned here – one can only commit fraud in the prosecution of foreclosure lawsuits for so long without penalty.
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Posted on October 23rd, 2010 by Mark Stopa
If you’ve ever wondered what “foreclosure fraud” is all about or how a homeowner could possibly have legitimate defenses to a foreclosure lawsuit, take a close look at the Order of Dismissal from Judge Rondolino.
The Plaintiff in this case is Deutsche Bank National Trust Company, as Trustee Under the Pooling and Servicing Agreement Dated as of May 1, 2001. However, the Note and Mortgage attached to the Complaint are in the name of Maxwell Mortgage, Inc. The Note contains no indorsement, and there is no allonge, no assignment of mortgage, and no other documentary evidence reflecting a transfer of the Note/Mortgage from Maxwell to Deutsche. Hence, on the face of the Complaint, Deutsche has no basis to obtain a foreclosure.
After Judge Rondolino dismissed the case the first time, Deutsche filed an assignment of mortgage. However, the assignment was not created until after the lawsuit was filed, and Florida law does not enable a plaintiff to acquire standing after filing suit. See Progress Exp. Ins. v. McGrath Community Chiro., 913 So. 2d 1281 (Fla. 2d DCA 2005). To circumvent this deficiency, Deutsche contends the Note was transferred to it before the suit was filed (even though the written assignment was done after) by some sort of “equitable assignment.” However, as Florida law requires the pleading of facts, alleging an “equitable assignment” is insufficient without specifying the time, place, and manner of transfer. In other words, where the written assignment post-dates the filing of the lawsuit, how could the “equitable transfer” have taken place beforehand?
If this sounds like a lot of legal jargon, it is. So here’s what’s really going on, both in this case and many others.
Banks don’t have their paperwork in order. Banks, in this case Deutsche, file foreclosure lawsuits on a regular basis without the requisite paperwork. When foreclosure cases go unchallenged, these deficiencies go unchallenged, so the banks generally get away with the deficient paperwork. When foreclosure lawsuits are contested, by attorneys such as myself, banks and their lawyers often try to fix the problem after the fact. That’s why I routinely see allegations like those in this case alleging an “equitable transfer,” without any factual basis, before the suit was filed even though the written assignment is dated after suit was filed. Again, how could an “equitable transfer” have taken place before the suit was filed when the written assignment is dated months after?
Whether these types of allegations are permitted is the issue in thousands of Motions to Dismiss (and, ultimately, motions for summary judgment) in foreclosure cases throughout Florida. Many judges, particularly senior judges, in their ongoing attempt to “push through” foreclosure cases, have denied Motions to Dismiss by homeowners, enabling Plaintiffs such as Deutsche to get away with conclusory allegations of “equitable transfer” without any factual basis.
As you can see, Judge Rondolino is not one of these judges. He believes Plaintiffs, even in foreclosure cases, should have to plead some facts in support of an alleged “equitable transfer” of the Note/Mortgage, particularly when the filing of suit precedes the date of the written assignment. Obviously, I agree … but there’s more to it than that.
The issue isn’t just whether Plaintiffs such as Deutsche should have to plead facts in support of the alleged equitable transfer … the issue is whether such facts exist. Again, how could an “equitable transfer” have taken place before the suit was filed when the written assignment is dated months after?
Given his reference to “incacerative sanctions” (if Deutsche’s allegations are proven untrue), it seems Judge Rondolino shares the same belief that I do – in many of these cases, the requisite facts don’t exist. In other words, it seems there was no “equitable transfer” before the suit was filed, yet Deutsche alleges otherwise to try to “push through” the foreclosure.
This sounds complicated, but this is the issue in foreclosure cases throughout Florida. Is the Plaintiff entitled to foreclose? Can it establish standing as of the date it filed suit? Is the bank’s paperwork in order? Many times, the answer is “no,” and it’s good to see a judge call out the banks on these deficient filings.
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Posted on October 23rd, 2010 by Mark Stopa
With foreclosure-related stories dominating national headlines on a daily basis, many lawyers, judges, and reporters have gotten knee-deep, if not neck-deep, in the foreclosure crisis. Sometimes, we’re so immersed in the battle, so deep in the forest, it’s easy to forget that many Floridians are unaware of the basics when it comes to foreclosure defense. Let’s take a step back, dispel some myths, and re-visit the basics:
1. As a Florida homeowner, you don’t need to leave your home unless and until the bank *wins* a foreclosure lawsuit. As such, even if you’re hopelessly behind on your mortgage, you don’t have to leave your home. Even if the bank writes you a default letter and sends it by certified mail, files suit against you, and threatens you on the phone, you don’t have to leave your home. You don’t need to leave your home unless and until the bank wins a foreclosure lawsuit against you.
To put it differently, there’s a reason I chose the name of this website – www.stayinmyhome.com.
Repeat after me: “I have the right to ‘stay in my home’ unless and until the bank wins a foreclosure lawsuit against me.”
2. As a Florida homeowner, you are entitled to have a foreclosure defense attorney represent you until the conclusion of your foreclosure lawsuit. In my view, my job as a foreclosure defense attorney is quite simple – to do whatever I can, within the law and consistent with my ethical obligations as an attorney, to try to prevent banks from winning foreclosure lawsuits against my clients. In any given case, my hope is that I can do a good enough job that the bank will offer my client a reasonable settlement offer and/or loan modifications that it otherwise would not offer. I’ve said this when I started practicing foreclosure defense and I still believe it – if you give up, you’re going to get foreclosed, but if you fight your foreclosure case, you at least give yourself a chance to avoid foreclosure.
3. Many non-lawyers think it’s easy for a bank to win a foreclosure lawsuit. That’s not necessarily so. When foreclosure defense attorneys such as myself force lawyers to prove their entitlement to foreclose in court, banks sometimes struggle to meet their burden of proof. Every case is different, and there’s no way to know for sure how any particular case will play out in court. That said, it’s possible the bank’s lawsuit will get dismissed. It’s possible, once you retain a competent and reputable foreclosure defense attorney, that the bank will be hesitant to go to court altogether. It’s possible the court will deny the bank’s motion for summary judgment and force the bank to prove its entitlement to foreclosure at trial (which would extend the duration of the foreclosure lawsuit and, hence, your time in your home). The court process, candidly, can be a bit uncertain. In my view, though, uncertainty is better than giving up and accepting foreclosure on your home.
As we’ve seen with the huge, national stories in recent weeks, nobody knows for sure what the future will bring. If you give up, foreclosure is all but set in stone. But if you defend your foreclosure lawsuit, you just may be able to stay in your home, perhaps for a long time, or even avoid foreclosure altogether.
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Posted on October 22nd, 2010 by Mark Stopa
One of my greatest frustrations in foreclosure cases is how well-taken Motions to Dismiss are systematically denied by many Florida judges, especially senior judges, who routinely seem to apply a different set of pleading requirements in foreclosure cases as compared to other lawsuits. Suffice it to say that I am pleased to receive this Order Granting Motion to Dismiss First Amended Complaint from Judge Anthony Rondolino in St. Petersburg. The seven-page Order is an absolute “must read” for all lawyers, judges, and homeowners, as it is an excellent recitation of Florida law and the pleading requirements in foreclosure cases.
It’s worth noting that I did not draft this Order – Judge Rondolino drafted this Order on his own. In an era of “rocket-dockets,” the attention to detail in the drafting of this Order is commendable.
Like most judges, I’ve won some hearings before Judge Rondolino and I’ve lost some. That said, it’s an absolutely wonderful feeling to go into a courtroom and feel like the Plaintiff and its lawyer are going to be held to the normal requirements of “pleading” and “proof” and that the lawsuit isn’t going to be “pushed through” simply because it’s another foreclosure case. It’s a level playing field; that’s all any litigant can ask.
I respectfully encourage every judge in Florida to read this Order. Respectfully, if a colleague of yours feels this strongly about these issues, shouldn’t you re-evaluate your position vis a vis Motions to Dismiss? Also, I encourage you to think about the effect that these Orders will have in Judge Rondolino’s cases. At this point, don’t you think Plaintiffs and their lawyers are going to think twice before they bring spurious allegations and deficient filings in his court? To the extent your goal is to clear up your dockets, can’t you accomplish it in the manner Judge Rondolino is doing rather than just “pushing through” deficient paperwork?
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Posted on October 21st, 2010 by Mark Stopa
The foreclosure crisis has spawned a myriad of headline-grabbing, national stories. Foreclosure fraud. Robo-signers. Strategic default. Many brilliant Americans are trying to figure out how to solve the problem. Finding the solution begins with understanding the problem.
As a foreclosure defense attorney on the “front lines” of the crisis every day, I believe the problem is much simpler than people realize. Homeowners and bankers are in a Tug-of-War. On one side of the rope, homeowners are pulling, trying to get loan modifications. On the other side, bankers are pulling, trying to finalize foreclosures.
Homeowners vs. Bankers
(I have homeowners on the left because they’re clearly the underdogs, struggling with inferior resources. The bankers are on the right due to their vast resources, aided by the bailout from the government.)
Everything we’ve seen in the foreclosure crisis falls under the umbrella of this Tug-of-War. In my view, it started with the bail-out of the banks, so let’s start there.
1. In 2008, with our nation’s economy in the toilet, the government bailed out the banks, intending to spur lending and stimulate the economy. But the bankers don’t modify loans.
Government Bails Out Bankers ==> No Loan Modifications.
2. The lack of loan modifications spawned more defaults by homeowners and unprecedented increases in the volume of foreclosures.
No Modifications ==> More Defaults & More Foreclosures
3. Faced with higher volume, bankers instituted questionable procedures to cut corners. Robo-signers. Foreclosure fraud (or, at minimum, neglect).
No Modifications ==> More Foreclosures ==> Bankers Cut Corners
4. Without modifications, and facing foreclosure, homeowners fight back, hiring foreclosure defense attorneys (particularly in states like Florida, which require judicial oversight).
No Modifications ==> Homeowners fight back, Hire Lawyers
5 Foreclosure defense attorneys help homeowners, uncover fraud.
No Modifications ==> Homeowners Hire Lawyers ==> Bankers’ Fraud Exposed
6. As this whole process continues, the real estate market and economy as a whole continue to stagnate. The ongoing Tug-of-War is being played in quicksand – both sides are pulling, and everyone is sinking.
More and more Americans wonder why they should pay they should pay their mortgage when a house down the street is selling for 40% of the mortgage. It’s the advent of strategic default.
No Modifications ==> Strategic Default
7. Not wanting everyone to default, bankers still refuse modifications. (This is one of the big perversities of the system. Bankers will never admit it, but the single biggest reason they won’t modify loans is they don’t want to incentivize all of the homeowners who are current on their loans to go into default.)
No Modifications ==> Strategic Default ==> No Modifications
8. Meanwhile, in states with judicial oversight of foreclosures, like Florida, judges see their caseloads quadruple, essentially overnight, prompting unprecedented procedural changes, and, in many circles, skepticism in the judiciary (due to the increasing perception that courts have enabled the foreclosure fraud).
No Modifications ==> Higher Volume ==> Strain on Judiciary
Now we sit, in October, 2010, with terms like robo-signer, moratorium, and foreclosure-gate a part of daily conversation. The Tug-of-War is now more intense than ever. Public debate rages about which side is right – the bankers or the homeowners, each side growing larger in number and getting more entrenched in their respective positions. Meanwhile, high-ranking officials try to solve the problem, struggling to come up with a solution.
Respectfully, the solution is simple. AMERICANS NEED LOAN MODIFICATIONS. Let me shout it from the rooftops:
AMERICANS NEED LOAN MODIFICATIONS
I’ve blogged on this website repeatedly about the problems with the loan modification process. If the government has any intention of fixing the mess, and the economy as a whole, it must find a way to force banks to modify loans. A few suggestions:
1. Every time a bank forecloses, impose a tax. A stiff one. Make the tax pro rata based on the value of the property. “You want to foreclose, bank. Fine. Pay $25,000. Or $50,000.” If bankers won’t modify loans, incentivize them to do so by hitting ‘em where it hurts – the wallet.
2. Reduce the principal on every owner-occupied property to its present value. I made this suggestion on this blog weeks ago, before Foreclosure-Gate became a national phenomenon. Yes, it’s a drastic suggestion, but this would drastically reduce strategic defaults, eliminate the backlog in our courts, and make mortgages affordable again. The bankers got bailed out (and didn’t help homeowners at all) – it’s time to bail out the people. Bankers may argue this is unfair, but I’d counter that this would stabilize housing prices, spur home sales, and get homeowners to start borrowing again.
3. Require judicial oversight of foreclosures in every state. If it’s harder for banks to foreclose, it will give them incentive to work out loan modifications.
4. Require banks to attempt modifications as a condition precedent to foreclosure. More importantly, make the banks prove that they complied with these conditions, to a judge, even in uncontested cases, before they can begin a foreclosure suit.
Until some such actions are taken, the Tug-of-War will continue. So if you’re a homeowner facing foreclosure, unable to get a loan modification, you really have little choice but to retain a competent foreclosure defense attorney, fight your foreclosure, and see what happens in the court system. At worst, you’ll be able to stay in your home a bit longer, and, hopefully, get back on your feet.
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Posted on October 21st, 2010 by Mark Stopa
This article from the Washington Post is worth the read.
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Posted on October 21st, 2010 by Mark Stopa
Indiana’s Attorney General has filed suit against ten companies who took advantage of homeowners in financial distress, i.e. foreclosure rescue scams. Given the nature of my practice, I’ve encountered many homeowners with horror stories about foreclosure rescue scams. ”They promised me a loan modification, took $2,500, and I never heard from them again.”
Unfortunately, there is sometimes no way to know for sure if the company with whom you are dealing is a “scam” until after the fact. That said, here are some warning signs that the company with whom you are dealing may not be on the “up and up”:
1. An out of state company. I have received inquiries from from homeowners facing foreclosure from all over the country. My response is always the same. “Unfortunately, I can only represent homeowners with properties in Florida.” Is that to say it’s impossible for an out-of-state company, or even an out-of-state lawyer, to help you? Not necessarily. That said, how is someone going to handle a foreclosure lawsuit from out of state?
2. A non-lawyer. If you’re sued for foreclosure, there are only two types of people who can defend the foreclosure lawsuit – (1) the defendant/homeowner; and (2) a lawyer. A non-lawyer cannot defend a foreclosure case; to do so would constitute the unlicensed practice of law.
3. A guarantee. The Rules Regulating The Florida Bar preclude lawyers from guaranteeing a result to a client (in any case, including foreclosure cases). Even if the Rules did not so require, I’d never give a client a guarantee. Unfortunately, there’s no way to know, for sure, what the bank is going to be willing to do in the future. Likewise, there’s no way to know, for sure, how a judge will rule. If you’re being given a guarantee, chances are pretty good that it’s a scam.
4. Up-front payments. This one is tough, because most lawyers charge up-front fees. So don’t view this as a determining factor in and of itself, but consider it in conjunction with the others. In other words, if an out of town, non-lawyer is guaranteeing you a loan modification and requiring you to pay up front, chances are excellent that it’s a scam.
5. The company instructs you not to communicate with your bank. It’s hard for me to envision a scenario where I’d tell a client who is seeking a loan modification or some other resolution in lieu of a foreclosure not to talk to the bank. If that’s what you’re being told, chances are good that your “foreclosure rescue” company doesn’t want you to talk to your bank to catch on to the fact that they aren’t doing anything.
6. The company is not filing papers in response to your foreclosure lawsuit. As I’ve blogged repeatedly, meaningful loan modifications are few and far between, especially prior to a foreclosure lawsuit being filed. If the “foreclosure rescue” company you’ve retained is not going to defend your foreclosure case, chances are they aren’t going to help you.
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Posted on October 20th, 2010 by Mark Stopa
The impact of Foreclosure-Gate on the title insurance industry continues to rear its ugly head. Today, Fidelity announced it will require lenders to sign a warranty ensuring their foreclosures were done properly before issuing title insurance.
“It’s just the prudent thing to do,” Peter Sadowski, executive vice president and chief legal officer for Fidelity National, said in an interview. “It is important for the servicers and the lenders to represent to us and to the people we are going to be insuring that there are no problems.”
Under the new policy,“[e]ven if a court sets aside a foreclosure due to a defect in documentation, the foreclosing lender would be required to return all funds obtained from our insureds, resulting in no loss under the title insurance policy,” Foley said.
This is huge news. Presuming this policy gets adopted by all title insurance agencies (as I presume it will), then this may prevent the destruction of the title insurance industry (a fear I’ve been discussing for many months). Essentially, the title insurance companies are shifting the risk associated with wrongful foreclosures and blighted titles onto the banks. It’s as if they’re saying “You did it wrong, banks, so if there’s a problem with title, you pay to fix it.”
Meanwhile, the banks want us to believe that their foreclosures are being done correctly. Just this week they terminated their temporary, self-imposed moratorium on foreclosures, coupled with press clippings that they found no problems with their foreclosure processes. This is one of those instances, though, where actions speak louder than words. The fact that Fidelity feels the need to insure against the possibility of title defects via faulty foreclosures speaks volumes. After all, the banks may say the foreclosures are being done correctly, but the title insurance companies obviously know better. At this point, so do we.
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